Tom Ortega II

Features vs Products, Sell vs Grow, Corporations vs Startups

In Business on November 11, 2011 at 10:55 am

Let’s Talk Business

I talk about business with a lot of people. The concepts behind a business: the whys, the hows, the wheres and the whats. One thing that has always boggled my mind is exit strategies. Some companies are clearly built to be flipped (i.e. sold early on), while others are intended to be around for a long time.

In an interview with Dropbox CEO, it was brought to light that Steve Jobs wanted to buy the online storage company. Steve told them, “You don’t have a product, you have a feature.” Clearly, the team at Dropbox disagrees, but that got me thinking.

Build to Sell or Build to Grow?

Up until fairly recently, I didn’t understand people who built to flip. Yet, at 360Conferences, I really did want a bigger media company to buy us. I wasn’t building a company to flip, I just thought that while we were good at doing conferences, we’d be better applying our mentality inside a bigger media company with the resources to fund wild ideas we dreamt up. John was definitely more of the “I want to do 360 for life,” which is why I sold out my half to him.

Looking back at a restaurant software idea I had, my exit strategy was to sell out to a Point of Sale company, merge with one or buy one. I saw my product offerings as being good on their own, but realized they would be better as part of a bigger suite of software/hardware offerings.

I think the decision on your exit strategy stems from how you see your offerings. If you see them as a feature of a larger collection of things, then you should expect to be bought or sell out someday. In particular if you never intend to build those other things. However, if you see it as more of a standalone product, then you’re better off building up a company to sustain it for years to come.

Feature or Product? Or both?

Now, here’s where it gets tricky and you have to watch out. Sometimes, you can be seduced into thinking your product is a feature. Look at say Turbo Tax with IntuitHotmail with Microsoft or PayPal with eBay. I’m sure both we’re not seen as features but as products by their founders. However, a suitor came along and sang sweet nothings of perfect pairings and enriching customer lives (and founders’ pockets). Heck, even Intuit itself was for a briefly a feature of Microsoft, until the Department of Justice said, “Yeah, no.” (Rumor has it that the lead ruler in the matter owned both Office and Quicken. “The people who made that <pointing at Office with disdain/> want to buy this? <looking lovingly at Quicken/> Yeah, I don’t think so.” Again, that’s just a rumor…that I just made up, but sounded too good to pass up. LOL)

If you think about it though, this natural progression makes sense. I mean, even Compaq, a huge company making lots of products, got convinced that they were really a feature of Hewlett Packard. (The irony is that HP recently announced that they’re likely gonna ditch their PC division aka Compaq.) There must be similar logic behind every multi-million/billion dollar merger, or they wouldn’t happen. Right? Some CEO convinces another CEO, “Look. You guys may or may not be doing alright, but look at how much better y’all could be!”

“My business is my baby!”

There’s a common comparison of business to children. You give birth to it, you nurture it, you watch it grow. Sometimes it dies, but other times it grows up to stand on its own. It takes on a personality similar to its founders/parents. It has good days and bad days. Much like life, business is full of good things and bad things: vendettas, people using others for gain and the rare long-lived friendships. Here’s some examples of those things in the business world:

  • Someone will take on a new lover to scorn a past one – Apple wanted to buy AdMob, but lost out to a rival bid from Google. They bought Quattro instead, to pretty much show AdMob how much they screwed up.
  • Some people use others to get ahead in life – Microsoft had Windows NT which they really wanted workstation manufacturers to start using, but the manufactures ignored it because nothing powerful ran on Windows NT. Therefore, Microsoft fixed this by buying Softimage, a powerful 3-D animation software package. They ported Softimage over to Windows NT, which got manufactures on board. This move helped contribute to the demise of the once mighty Silicon Graphics Inc. SGI had a very expensive vertical stack of processors, OS, machines and even graphics software, which toppled to low-cost solution provided by Microsoft and it’s partners.
  • Lifelong friendships do exist out there – Think of McDonald’s and its supplier, Golden State Foods. When Ray Croc and the McDonald’s brothers decided to go the franchise route, they specifically did not want to sell all the food products, just the restaurant concept. Hence Golden State Foods was given the opportunity to become a huge company supplying the actual food in the McDonald’s restaurants. (Sidenote: Golden State Foods actually “created” the Big Mac sauce, which I have to admit is one of the few things I like in McDs.)

If you take this analogy one step further, you come to this realization. Generally speaking (I’m not here to argue philosophy of life), a child is raised to get married and repeat the process. So by that logic, mergers and buyouts are simply a way of life while some “greats” go at it alone. Much like life, these are the companies so focused on their goal that they have no time to even ponder mergers, because all they think about is their offerings.

“Hey old man, get with the times!”

Now again, one point of marriage (philosophy aside) is to make babies. So, it should come as no surprise that after a merger, many a startup are born. Whether by people who meet because of the merger, get let go as “cost savings” or because the new company gets to be so slow that employees have no choice but to leave and start their own to get something done.

The irony to me though is in the cycle of startup to corporation to startup:

Step 1: Idea Phase – “Hey, I bet we could do that better.”

Step 2: Startup Phase - “Let’s start something. We’re faster and better than those giant corporations.”

Step 3: Discovery – “What exactly are we building? Who’s going to pay for it?”

Step 4: Growth – “Awesome, we’re getting customers by the boatloads! Let’s hire folks.”

Step 5: Management – “Hmmm…we have a lot of people, someone should manage them.”

Step 6: MegaCorp – “We can’t do that! We have legacy products to support and committees to go through.”

Step 7: Stagnation – “We know our customers and employees. They want this and nothing else.”

Step 8: Rinse/Repeat- Select customers and employees head back to Step 1 to repeat the cycle.

For awhile there, I thought all businesses were doomed to repeat that cycle. To which, I thought, “I don’t want that to happen to my business.” However, what are we to do? Businesses grow and as they grow you have to do things. Well, yes and no. If you gamble, err, I mean, play by Wall Street’s rules and go public. Yes, you have to do this. Which got me thinking. What if you don’t ever want to go public? What if you just want to stay a privately held company forever? Could you do it? Would it work? What would that look like?

I would start to get depressed about this stuff. Then, things started to change and hope brightened the horizon.

“I’m a feature and I’m proud of it.”

The best thing to come out of the recent generation of startups are not the WebVans, Pets.com, GroupOns or Zyngas of the worlds. Rather it’s the “Start small, stay small” mentality of owner/businesses like Marco Arment of Instapaper, Patrick McKenzie of BingoCardCreator, John Wilker of 360|Flex/360|iDev, etc. These are people who understood from the get go what I just discovered, and fly in the face of it. They know they’re a feature, but since it’s only them, it doesn’t need to be a suite of products. As long as they have enough to get them by, they’re happy.

You have to admire people like that. They may seem crazy, but they are the ones slowly changing the (business) world to make it better. They give hope to the masses who sit in a cube farm frustrated with the inadequacies of the companies they work for. And when they finally reach the tipping point, they’ll venture out on their own. Only now, with alternative models to look up to, they may finally break that vicious cycle.

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